Sunday 13 November 2011 15.35 EST
First published on Sunday 13 November 2011 15.35 EST

An Israeli cabinet committee has voted to pass legislation backed by the prime minister, Binyamin Netanyahu, that would cut tens of millions of pounds in foreign funding to human rights organisations.

The ministerial committee for legislation passed two bills, one of which limits all funding for non-governmental organisations from foreign bodies, including the United Nations, to 20,000 shekels (£3,300) a year. The other seeks to tax all contributions to NGOs by foreign states. Those who support the bills say many NGOs are political groups working under the guise of human rights to "delegitimise Israel".

Last week, Matthew Gould, Britain's ambassador to Israel, added his voice to concerns from international diplomats. Gould met the bill's sponsor, Likud minister Ophir Akunis, to warn him that the passage of his legislation would reflect very badly on Israel in the international community.

On Sunday, embassy sources in Tel Aviv confirmed they would be monitoring the bill's progress carefully.

In 2010, the British embassy donated £300,000 to human rights organisations in Israel.

The EU's ambassador to Israel, Andrew Standley, is also reported to have contacted Netanyahu's national security adviser, Yaakov Amidror, last Thursday to advise him that approving the bill would threaten Israel's standing as a democratic state.

Eleven ministers voted for the bill on Sunday, while five voted against. A senior Israeli official defended the government position: "It is not good for democracy to allow foreign governments to be directly involved in political activities.

"In Britain, you had a very open and democratic debate about the Iraq war. How would the British public feel if they discovered France or Russia had funded one side of that debate?"

Likud's Benny Begin, son of the former prime minister Menachem Begin, was among ministers who opposed the bill, which means it must now pass a second cabinet vote before it can be submitted to the Knesset. This vote is not expected to take place for several weeks.

The government has suggested the bill may be amended to distinguish between groups with a political agenda and those working genuinely to promote human rights.

The distinction has offered little comfort to activists who claim such a law would in effect criminalise political dissent. Among those groups in jeopardy is the leading Israeli rights organisation B'Tselem, which receives hundreds of thousands of pounds from the British embassy and UK charity Christian Aid each year. Sarit Michaeli, the group's spokeswoman, says it stands to lose half its annual budget if the law is passed, but it will continue its work regardless. Many smaller organisations, she says, will be worse off.

Christian Aid donates £200,000 annually to organisations in Israel, including B'Tselem, Physicians for Human Rights and the Association for Civil Rights.

It has expressed concern thatSunday's cabinet decision reflects a wider trend in Israeli legislation that compromises the country's treaties with the EU binding it to the defence of human rights.

"This is yet another blow to democracy in Israel," said William Bell, a Middle East expert at Christian Aid. "Whether this legislation is passed or not, it has succeeded in creating a great deal of insecurity and uncertainty among the Israeli NGO community, or anyone talking about issues it would seem the government doesn't want it to talk about."

There is recent precedent of the Knesset approving legislation to restrict activists. In February 2010, a bill proposing to withdraw the charitable status of organisations receiving money from foreign states was passed, increasing scrutiny of how NGOs are funded.

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